I got into a debate the yesterday with my friend regarding the the value of an object. It started with this
link I sent him about a voter in the US mailing in his vote with an "
Inverted Jenny" stamp. A block of four of the rare stamp sold for $2.7m in October 2005.
Going back to the subject of the debate, he said it was stupid that someone would buy a stamp like that and that it's crazy for a stamp to be valued at that price. I told him that the value of an object is relative to what another is willing to pay for it.
He said that gold is a better value or diamond, I told him that the value of gold or diamond is also relative to what another is willing to pay for it. But he insisted that when World War 3 comes, that stamp would be worthless and that gold will be the only thing that would be of value.
While I did not disagree with him, I told him that gold or diamond is only valuable as long as someone attaches a value to it. While gold would probably be more valuable compared to the stamp since it is more durable and unlikely to get damaged. If no one wants the gold, then it would be worthless.
As an example, I told him if WW3 comes and his children are starving and haven't eaten for 3 days. I come along and have gold on one hand and a big steak on the other, which would he choose? He chose the steak, so I told him, at that point in time, the steak was more valuable than gold.
He would probably kill me or steal the gold after he ate the steak, but I think that proves my point that the value of an object is only relative to what another person is willing to pay for it.
While most people would certainly agree that gold is valuable, people forget that for several years, gold was practically worth very little. Only recently has gold prices gone up, but during the 1990s, gold was at a history low price. Hardly anyone invested in gold nor did they buy lots of gold.
I recall an article in the late 90s where it said that a bag of Intel processors was worth more than an equivalent bag of gold. Even though the Intel chips contained gold, the value of the chips were worth more. The article even said that it's better to invest in Intel chips than gold.
Same with diamonds, historically, diamonds were really worth nothing. It just looked liked a shiny piece of glass. More values were given to rubies, sapphires and other precious gems. Why do you think Jesus was given the gift of gold, frankincense and myrrh but not diamonds? Because they were more precious than diamonds.
Diamonds became popular only when De Beers did an excellent marketing campaign and made it the jewel of choice for those getting married. The "diamonds are forever" marketing is one of the best ones and last to this day. They even marketed that you should spend 2 months salary to pay for a diamond engagement ring.
But one has to remember that diamonds are commodities just like anything else. The price of diamond is artificially inflated. It does not follow the price of supply and demand because De Beers and most diamond miners keeps supply artificially low. They have a lot of supply, they just don't sell it lest there be a sudden oversupply and the price of diamond goes down the drain.
How does this relate to gold? Well, gold is going up because people are starting to realize that paper money is actually not even worth the paper it is printed on. Paper money is a promise by a "government to pay" the amount printed on the money. But with the US government running trillions of dollars in debt, people are starting to realized that maybe the US government cannot promise to pay its commitments. That's why they're buying gold. That's why the value of the US dollar is dropping.
The currencies of countries like Australia and Canada are going up relative to the US Dollar is because the economies of these countries are commodities based. Oil, gold, uranium, etc. As the commodity prices go up, people have to buy their currencies to buy them, more demand, higher price for their currencies. As I said, everything is relative.
We both remember when we all thought that comic books were valuable in the early 90s. We bought Spiderman 1, Death of Superman and all those other comics hoping we would one day sell them for thousands. Guess what? Comic books just like other collectibles and commodities went into a bear market. Overprinting by publishers led to a glut of comics and titles and there was a huge oversupply of comics. Nobody was spared and even Marvel Comics, makers of Spiderman and X-Men went bankrupt.
The point I was trying to impart to my friend is that he shouldn't view everything as black and white. Just because someone said that gold or diamond is valuable doesn't make it so. Just because we are told that the U.S. Dollar is valuable doesn't make it so either. When someone says something is valuable, always question the assumption as to why it is valuable. Lest we get drawn into collecting comics again hoping they will become valuable. Perhaps they will be again, in another 20 years...
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